Escaping the Resource Curse 26 February 2004

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Escaping the Resource Curse 26 February 2004

• Oil and Government
• Macartan Humphreys
• Department of Political Science and
• The Earth Institute, Columbia University

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The commodity-conflict relation is becoming
better understood

• Primary commodities strongly associated with
  conflict, and oil in particular
  
• Two key mechanisms
• (1) through the weakening of the state
• (2) through the financing of rebels, sometimes by
  corporations
  
• Effect (1) seems dominant but some clear cases of
  effect (2) also
  
• Here follow 5 suggestions for dealing with these
  governance problems
  

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Recommendation 1

• Publication of Payments Make it mandatory
• The Problem with Voluntary Compliance
• The countries where voluntary compliance is least
  likely are the countries where you need it most
  
• If voluntary compliance fails, corporations will
  still want to deal with unrepresentative
  governments
  
• If it succeeds, regimes in resource rich
  countries are still likely to be overthrown, more
  so than governments in corporations home
  countries
• Advantages of Mandatory Compliance
• For governments Mandatory requirements can
  strengthen the position of willing governments
  
• For corporations It can level the playing field
  in cases where corporations compete against other
  corporations that are not constrained by human
  rights concerns
• Practicalities
• There are different ways this can be done
  delisting, through IFI conditionality, through
  other legislation

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Recommendation 2

• Establish a Global Public Information Center
• The Problem
• Lack of transparency about what is transparent!
• What deal did Chad get? I dont know, Chadians
  dont know. We are not sure even what we are
  supposed to know about this transparent deal
  
• Suggestion Establish a single site, posting
  relevant legislation bids and contracts from all
  resource producing states
  
• Advantages
• Makes it obvious when documents are not
  available
  
• Posting could be used as a condition for
  financing
  
• Practicalities Could be hosted by the World
  Bank, by the OSI
  

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Recommendation 3

• Maintain Income Taxes
• The Problem States accessing resource revenues
  are tempted to drop income axes, in part because
  they are distortionary, in part because they are
  difficult to collect and sometimes unpopular. But
  doing this weakens the linkages between the state
  and society.
• Suggestion Maintain Income Taxes
• Advantages
• Avoid hollowing out of state structures
• Make revenues dependent on national income
• Make revenues dependent on popular support
• Practicalities Use natural resources revenues
  for targeted expenditure not for general
  budgetary support

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Recommendation 4

• Get corporations involved at the peace
  negotiations table
  
• The Problem
• The implementation of peace negotiations is often
  jeopardized by the lack of employment
  possibilities for ex-combatants. Investors fears
  of a re-start of conflict can become
  self-fulfilling prophecies.
• Advantages of getting corporations involved at
  the peace negotiations table
  
• For corporations Awareness of quality of deals
  and interests of groups
  
• For the country Help provide basis and
  confidence in economic terms of the deal
  
• Risks
• May stifle competitions
• Moral hazard

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Recommendation 5

• Make contracts conditional upon criteria for
  Regime Recognition
  
• The Problem Successful mining may lead to the
  desire to capture the state. Whoever gets the
  sate gets control of the assets. This increases
  political risk.
• Suggestion. Tie accounts and contracts to
  available mechanisms for recognizing regimes
  
• For example Regimes recognized by the African
  Union
  
• For example Establish club criteria for
  recognition, similar to the Millennium Challenge
  Account provisions